By TYLER COWEN
Published: April 16, 2010
Source: The New York Times.
AMERICA’S long-run fiscal outlook is bleak, mostly because of an aging population and rising health care costs. To close the gap between expenditures and revenue, we’ll likely see a combination of revenue increases and spending cuts. And we’ll need to focus especially on reducing spending, largely because that taxes on the wealthy can be raised only so high.
Consider the tax burden on high earners once the Bush administration’s tax cuts expire next year. Add up the federal, state, city and sales taxes for a lawyer in New York City who earns $300,000 a year. Depending on the circumstances, this individual could be facing marginal tax rates in the range of 60 percent. Higher income tax rates would discourage hard work and encourage tax avoidance, thereby defeating the purpose of the tax increases.
The most potent way to add revenue is to impose a value-added tax. As its name indicates, a V.A.T. takes some percentage of the value added at each stage of production. V.A.T.’s raise money so readily and so invisibly that they often climb to a range of 15 to 20 percent; politicians like the revenue, and voters don’t always notice the burden.
A move toward a V.A.T., however, also brings price inflation, a big increase in the tax-collecting bureaucracy and the emergence of favored sectors with exemptions or lower rates. Though we may well end up with a V.A.T., it isn’t obviously the best option.
Burdening citizens with much higher taxes would fundamentally change what this country is about. Our founders envisioned a government that would provide public goods but not guarantee everyone’s well-being against every possible obstacle. Immigrants would be offered a franchise to come here and make good if they could — while bearing considerable risk themselves. To this day, this openness has elevated many millions in health, prosperity and liberty — and enabled many newcomers to innovate and offer new goods and services, or scientific ideas, to the world.
Higher levels of government spending and taxation would also soak up resources that might otherwise foster innovation and new businesses. And sentiment would most likely turn ever stronger against those immigrants who consume public services and make the deficit higher in the short run. Current residents might feel more secure in a larger welfare state, but over time the loss of commerce and innovation takes a toll.
The macroeconomic evidence also suggests the wisdom of emphasizing spending cuts. In a recent paper, Alberto Alesina and Silvia Ardagna, economics professors at Harvard, found that in developed countries, spending cuts were the key to successful fiscal adjustments — and were generally better for the economy than tax increases. Their conclusion was based on data since 1970 from the Organization for Economic Cooperation and Development.
The received wisdom in the United States is that deep spending cuts are politically impossible. But a number of economically advanced countries, including Sweden, Finland, Canada and, most recently, Ireland, have cut their government budgets when needed.
Most relevant, perhaps, is Canada, which cut federal government spending by about 20 percent from 1992 to 1997. The Liberal Party, headed by Jean Chrétien as prime minister and Paul Martin as finance minister, led most of this shift. Prompted by the financial debacle in Mexico, Canadian leaders had the courage and the foresight to make those spending cuts before a fiscal crisis was upon them. In his book “In the Long Run We’re All Dead: The Canadian Turn to Fiscal Restraint,” Timothy Lewis describes Canada’s move from fiscal irresponsibility to a balanced budget — a history that helps explain why the country has managed the current global recession relatively well.
To be sure, the spending cuts meant fewer government services, most of all for health care, and big cuts in agricultural subsidies. But Canada remained a highly humane society, and American liberals continue to cite it as a beacon of progressive values.
Counterintuitively, the relatively strong Canadian trust in government may have paved the way for government spending cuts, a pattern that also appears in Scandinavia. Citizens were told by their government leadership that such cuts were necessary and, to some extent, they trusted the messenger.
IT’S less obvious that the United States can head down the same path, partly because many Americans are so cynical about policy makers. In many ways, this cynicism may be justified, but it is not always helpful, as it lowers trust and impedes useful social bargains.
Forces like the Tea Party movement argue for fiscal conservatism, though it isn’t obvious that they are creating the conditions for success. Over the last year, we have been treated to the spectacle of conservatives defending Medicare against proposed cuts, in large part to curry favor with voters and mobilize sentiment against the Democratic health care plan.
Right now there is plenty of concern about debt and deficits, but little consensus on which expenditures should be cut or reined in. Sooner or later, we’ll have to reconsider virtually every segment of the federal budget.
The issue of fiscal responsibility isn’t going away. So the question is now this: How deeply will we dig ourselves in before we create a more mature and more forward-looking political culture?
Tyler Cowen is a professor of economics at George Mason University.
Why Quebec has so much trouble attracting immigrants
By HENRY AUBIN, The Gazette April 17, 2010
One of the most frustrating social trends in Quebec is the way that we as a society treat immigrants.
It's a crazy situation. We need - seriously need - immigrants. We need them to fill jobs that will be left vacant by Quebec's shrinking labour pool. We need them to pay the taxes that will pay for the health and social costs of this province's looming geezer-ization. And we need them to help pay back Quebecers' public debt (including our part of the federal debt), which the province's finance ministry rates as the world's fifth-highest (after Japan, Italy, Greece and Iceland).
And yet, as a study this month by the Montreal think tank CIRANO suggests, we as a society are blowing it.
The study notes, for example, that the jobless rate for immigrants who have a post-secondary education is 13 per cent. According to the 2006 census, that's almost twice the jobless rate among comparable immigrants in Ontario and British Columbia. It's three times the rate for Canadian-born holders of post-secondary diplomas.
This partly explains why only 18 per cent of all immigrants to Canada come to Quebec, too few for a province with 23 per cent of the country's population. (By contrast, Ontario and B.C. between them account for 51 per cent of the population but get 63 per cent of immigrants.) What makes Quebec's situation all the more unacceptable is that for decades the province has wielded more power over the selection of immigrants than any other province. Quebec sets its own criteria on who gets in.
You'd think that those it chooses to welcome would be more likely to do well. Not so: 19 per cent of immigrants age 25 to 54 are unemployed five years after arriving. Compare that with the 12-per-cent level for Canada as a whole.
Why this appalling record? Let's not heap too much blame on Quebec's language law. Yes, the primacy of French here induces many people to settle in English Canada, but it doesn't explain why even French-speakers often fail to crack the job market. Indeed, language theoretically ought to be less of a barrier to finding work here than in other provinces: 60 per cent of immigrants to Quebec in 2008 spoke either French or English upon arrival, the highest rate of any province.
So let's look beyond language.
The study suggests that part of the unemployment problem (although perhaps only a modest part) is Quebec's standing as "l'État providence" - that is, as the province with the most generous social benefits. The study's authors, the Université de Montréal's Brahim Boudarbat and Maude Boulet, note that the 2001 census shows that immigrants age 25 to 54 in Quebec obtained a whopping 52 per cent more public money than did their counterparts in the rest of Canada. The authors note this hardly spurs some people to work at a poorly paid job.
The problem here is not only with freeloading but also with the Quebec government's immigrant-screening process and social-benefits rules. They do too little to guard against parasitism.
A bigger problem is Quebec employers' well-known reluctance to recognize diplomas and experience acquired elsewhere than in North America or Europe. The study says this wariness is more acute here than in Ontario or B.C. Given that most immigrants are visible minorities, the study suggests racial bias can play a role.
The study does not deal with it, but Quebec's business establishment is notably remiss about putting out a welcome mat for visible minorities. Example: Of the 25 members of the Montreal Board of Trade's board of directors, not one is a visible minority.
The Quebec government itself is part of the problem. On the one hand, it recognizes the economic imperatives of attracting more immigrants and, indeed, it is doing so: It settled 49,500 immigrants last year, the most since 1991. On the other hand, it fails to use its own colossal civil service as a model by hiring immigrants or even their born-in-Quebec offspring.
To be sure, politicians say they want to do better. In 1990, the Bourassa government expressed embarrassment that a minuscule 1.7 per cent of its public service was from the cultural communities (loosely, first- or second-generation immigrants); it said it would double the rate by 1994. Only now, 16 years later, are we reaching Robert Bourassa's modest interim target. Most other provincial governments are miles ahead.
No other province needs immigrants so badly. No other province has so much power to choose desirable applicants. And yet, of the three provinces that receive the lion's share of immigrants, Quebec has the most trouble easing immigrants into roles in which they can contribute to society.
Crazy.
haubin@ thegazette.canwest.com
© Copyright (c) The Montreal Gazette
Read more: http://www.montrealgazette.com/business/Quebec+much+trouble+attracting+immigrants/2917753/story.html#ixzz0lS0EWIW5
One of the most frustrating social trends in Quebec is the way that we as a society treat immigrants.
It's a crazy situation. We need - seriously need - immigrants. We need them to fill jobs that will be left vacant by Quebec's shrinking labour pool. We need them to pay the taxes that will pay for the health and social costs of this province's looming geezer-ization. And we need them to help pay back Quebecers' public debt (including our part of the federal debt), which the province's finance ministry rates as the world's fifth-highest (after Japan, Italy, Greece and Iceland).
And yet, as a study this month by the Montreal think tank CIRANO suggests, we as a society are blowing it.
The study notes, for example, that the jobless rate for immigrants who have a post-secondary education is 13 per cent. According to the 2006 census, that's almost twice the jobless rate among comparable immigrants in Ontario and British Columbia. It's three times the rate for Canadian-born holders of post-secondary diplomas.
This partly explains why only 18 per cent of all immigrants to Canada come to Quebec, too few for a province with 23 per cent of the country's population. (By contrast, Ontario and B.C. between them account for 51 per cent of the population but get 63 per cent of immigrants.) What makes Quebec's situation all the more unacceptable is that for decades the province has wielded more power over the selection of immigrants than any other province. Quebec sets its own criteria on who gets in.
You'd think that those it chooses to welcome would be more likely to do well. Not so: 19 per cent of immigrants age 25 to 54 are unemployed five years after arriving. Compare that with the 12-per-cent level for Canada as a whole.
Why this appalling record? Let's not heap too much blame on Quebec's language law. Yes, the primacy of French here induces many people to settle in English Canada, but it doesn't explain why even French-speakers often fail to crack the job market. Indeed, language theoretically ought to be less of a barrier to finding work here than in other provinces: 60 per cent of immigrants to Quebec in 2008 spoke either French or English upon arrival, the highest rate of any province.
So let's look beyond language.
The study suggests that part of the unemployment problem (although perhaps only a modest part) is Quebec's standing as "l'État providence" - that is, as the province with the most generous social benefits. The study's authors, the Université de Montréal's Brahim Boudarbat and Maude Boulet, note that the 2001 census shows that immigrants age 25 to 54 in Quebec obtained a whopping 52 per cent more public money than did their counterparts in the rest of Canada. The authors note this hardly spurs some people to work at a poorly paid job.
The problem here is not only with freeloading but also with the Quebec government's immigrant-screening process and social-benefits rules. They do too little to guard against parasitism.
A bigger problem is Quebec employers' well-known reluctance to recognize diplomas and experience acquired elsewhere than in North America or Europe. The study says this wariness is more acute here than in Ontario or B.C. Given that most immigrants are visible minorities, the study suggests racial bias can play a role.
The study does not deal with it, but Quebec's business establishment is notably remiss about putting out a welcome mat for visible minorities. Example: Of the 25 members of the Montreal Board of Trade's board of directors, not one is a visible minority.
The Quebec government itself is part of the problem. On the one hand, it recognizes the economic imperatives of attracting more immigrants and, indeed, it is doing so: It settled 49,500 immigrants last year, the most since 1991. On the other hand, it fails to use its own colossal civil service as a model by hiring immigrants or even their born-in-Quebec offspring.
To be sure, politicians say they want to do better. In 1990, the Bourassa government expressed embarrassment that a minuscule 1.7 per cent of its public service was from the cultural communities (loosely, first- or second-generation immigrants); it said it would double the rate by 1994. Only now, 16 years later, are we reaching Robert Bourassa's modest interim target. Most other provincial governments are miles ahead.
No other province needs immigrants so badly. No other province has so much power to choose desirable applicants. And yet, of the three provinces that receive the lion's share of immigrants, Quebec has the most trouble easing immigrants into roles in which they can contribute to society.
Crazy.
haubin@ thegazette.canwest.com
© Copyright (c) The Montreal Gazette
Read more: http://www.montrealgazette.com/business/Quebec+much+trouble+attracting+immigrants/2917753/story.html#ixzz0lS0EWIW5
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